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Guilty Verdicts In Elizabeth Holmes Trial Are A Wake-Up Call For All Business Executives
From:
Edward Segal, Crisis Management Expert Edward Segal, Crisis Management Expert
Washington, DC
Friday, January 14, 2022

 

Commentary From Crisis Management Expert Edward Segal, Author Of The Award-Winning Book Crisis Ahead: 101 Ways to Prepare for and Bounce Back from Disasters, Scandals, and Other Emergencies (Nicholas Brealey)

The four guilty verdicts that were delivered by a jury earlier this month in the trial of entrepreneur Elizabeth Holmes are a wake-up call for all business executives. The failure to heed the lessons from the meteoric rise and fall of Holmes and her company could create crisis situations for other organizations.

A Company Must Be Backed By Facts

Jared Carter, a law professor at Vermont Law School, observed that the jury's findings, "resoundingly says that truth matters and that the rule of law prevails. This will have a significant impact on business leaders across a broad spectrum of industries. While Theranos wasn't a tech company per se, the connection is often drawn because of the reach that Holmes had and her unique ability to raise capital.

"But, the bottom line is, the counts of which she was found guilty will have a ripple effect. The verdict sends a powerful message to Silicon Valley and beyond: You can't simply pitch a company into existence through fraud. A company must be real and must be backed up by facts," he said.

'You Can't Deal In Alternative Realities'

According to Carter, "In many ways, Holmes has been found guilty of dealing in fake news—in the context of the business world as opposed to politics. Fake news may sell advertising, but this verdict shows that you can't deal in alternative realities when it comes to investors and the marketplace.

"This was also a win for the free market, which can only function when we operate under a common factual basis and reality—under truth. Without truth, our economic system collapses," he warned.

There Are Consequences To Hubris And Hype

David Clark, a partner at The Clark Law Office, pointed out that Holmes' trial verdict "offers Silicon Valley's fake-it-til-you-make-it culture a hard truth—that optimism and confidence in your work, product, service, or company must be bound by verifiable studies and reviews, otherwise, it will be a form of false marketing and a definite practice of fraud.

"This very case alone, with or without the verdict, reminds CEOs that there are consequences to...hubris and hyping their offers and businesses without proper assessment and/or accurate evidence. Bottom line, faking it 'til you make it certainly does not work well in industries connected to mankind's health and wellbeing," he said.

Clark cautioned that, "Misleading consumers and false advertising in hopes of dominating the field and reaping personal benefits is an immoral act that can push even the brightest minds to play with fire and blur the lines between what's legal and what's not."

'Fraud Will Backfire'

Marina Mara, an international media, brand and reputation advisor, said Holmes' criminal fraud trial serves as a cautionary tale for company founders around the world.

"Fraud camouflaged as innovation and viral publicity will always backfire as it did for Theranos. Business leaders need to have a solid understanding of due diligence and fact-checking before they embark on ambitious capital raising journeys in the media spotlight because not only deceit but mistruths will eventually surface."

Don't Bend The Truth

Dan Fugardi an advisor with F22 Growth Advisors noted that, "Early-stage entrepreneurial leaders have a very tricky balance of convincing everyone to see a vision, while doing so 'correctly.'

"Company visions are often not small, and turning these visions into reality often takes a village, thus you end up having to convince a village that this vision is 'real.' Then add on top of if it aphorisms like 'Fake it until you make it', which imply certain benefits to what could obviously be considered lying," he said.

"So, where is the line? Well in business, there really isn't much room for playful or innocent lying. Take this a step further when applied to a generally common component of business called money, innocent lying is often also known as fraud," Fugardi noted.

He recommended that, "When you are talking about today's facts, be careful not to be too selective, and at no point replace facts with your opinions or, worse, fake information (lies) because there is no crisis that is worse than prison."

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Edward Segal is a crisis management expert, consultant and author of the award-winning Crisis Ahead: 101 Ways to Prepare for and Bounce Back from Disasters, Scandals, and Other Emergencies (Nicholas Brealey). He is a Leadership Strategy Senior Contributor for Forbes.com where he covers crisis-related news, topics and issues. Read his recent articles at https://www.forbes.com/sites/edwardsegal/?sh=3c1da3e568c5.

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